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The 5% Deposit Scheme and a factory-built home

From Modular Living Australia — the independent knowledge base Last updated: 8 Oct 2026

Under the Australian Government 5% Deposit Scheme an eligible first home buyer can borrow with a deposit of at least 5%, with Housing Australia guaranteeing up to 15% of the property value to the lender; for a build, construction must finish within 36 months of loan settlement, and owner-builders are not eligible.^[1] Since 1 October 2025 the scheme has had no income caps or limits on places.^[2]

The Australian Government 5% Deposit Scheme lets an eligible first home buyer borrow with a deposit of as little as 5 per cent without paying lenders mortgage insurance. Housing Australia guarantees part of the loan — up to 15 per cent of the property value — to the lender^[1]. On 1 October 2025 the scheme was expanded: income caps were removed, the limit on the number of places was removed, property price caps were increased, and the former Home Guarantee Scheme was renamed^[2].

Most published explanations of the scheme assume you are buying an existing house. If you are having a home manufactured in a factory, four of the scheme's rules matter far more than the headline deposit figure, and one of them rules out a whole category of buyer.

The guarantee is not construction finance §

This is the most common confusion, so it is worth stating first. The guarantee protects the lender, not you. It is not a cash payment and you receive no funds. If you default and the sale of the property does not cover what you owe, Housing Australia pays the lender the shortfall up to a pre-agreed limit^[1].

It therefore does nothing about the problem that is specific to off-site construction — that a lender may be unwilling to release progress payments while the home is still a chattel on a factory floor. That is a separate issue, addressed by lender-specific products and, in Tasmania, by a proposed state guarantee that is still only a draft. If your lender will not fund the factory stage, the 5% Deposit Scheme does not change that answer.

Rule 1: the property type has to be one of four §

The scheme recognises four property types: an existing home; a new-build bought as a house and land package; vacant land with a separate contract to build a home; or an off-the-plan property^[1].

A modular or prefab build almost always has to be framed as one of the two middle options. Which one depends on who sells you the land:

House and land package

You buy the land from the same party who will build your home. Before loan settlement you must have both a contract of sale for the land and an eligible building contract — as one contract or two^[1].

Vacant land with a separate build contract

You buy land from one party and contract with a different party to build. This is the usual shape for a modular build, because the manufacturer is rarely the landowner. You must enter the building contract within six months of loan settlement^[1].

There is a trap in the second option. If you already own vacant land before securing a scheme place and then want a new home loan to build on it, you are not eligible^[1]. Buyers planning to put a modular home on land they inherited, were given, or bought years ago are outside the scheme on that fact alone. Separately, holding a freehold interest in real property — which includes owning land — in the previous ten years disqualifies you from the first home buyer test in any case^[1].

Rule 2: the building contract has to meet four conditions §

For a building contract to be eligible it must be with a licensed and registered builder, carry insurance policies relating to building the home, be entered into on an arm's-length basis, and specify a fixed price for the build. Owner-builder contracts are not eligible^[1].

Three consequences follow for factory-built housing.

The owner-builder exclusion removes the kit home route entirely. If you are buying a flat-pack or panelised kit and acting as your own builder, no part of that arrangement can be covered by this scheme, however cheap the kit is. Kit homes and the owner-builder pathway are covered separately on this site.

The licensed-and-registered requirement points at your state's builder register, not at the factory. A manufacturer that builds well but is not licensed to carry out residential building work in the state where the home will be installed does not satisfy it. Checking a builder's licence is a separate exercise and one worth doing before signing anything.

The fixed-price requirement is the one that usually favours modular. Fixed-price contracts are common in the sector precisely because the manufacturing cost is knowable in advance. But note what "fixed price" covers: the build. Site works, connections, craneage and delivery are frequently outside the base contract, and those are the costs that move.

Rule 3: the combined figure has to fit under the cap §

Both the purchase price and the property value as assessed by the lender must be at or below the price cap for the location. Where you buy vacant land and build under a separate contract, the combined land purchase price and build cost must also stay under the cap^[1][3].

Caps published in the 1 October 2025 Information Guide were:

Source: Housing Australia Information Guide, 1 October 2025^[1]. These are indexed figures that change. Confirm the current cap for a specific location with Housing Australia or a Participating Lender before relying on it.

The combined-figure rule is where modular buyers most often come unstuck, because the land is contracted first and the true build cost — including the site-specific extras — is settled later. If the total ends up over the cap, the loan is not eligible and the lender may require LMI or a larger deposit^[1].

Rule 4: the clock starts at settlement §

For all new builds the lender will require you to enter an eligible building contract within six months of loan settlement, start building within twelve months, finish within thirty-six months, and move in within six months of an occupancy certificate being issued^[1]. The loan term can run up to thirty years, plus up to three years to build^[1].

For land purchases, the land must be titled before a guarantee can be issued, and that has to happen within the ninety-day pre-approval period^[1].

Off-site construction sits comfortably inside the thirty-six-month build window — that is one of its genuine advantages here. The pressure point is the front end: the six-month deadline to sign a building contract, and the ninety-day titling requirement if you are buying into a new estate where titles are still being registered.

Ongoing conditions §

The scheme is for owner-occupiers. You must start living in the property within six months of the occupancy certificate for a new build, and keep living there while the guarantee applies. Renting the property out ends the guarantee^[1]. The guarantee also ends if you sell, refinance away from a Participating Lender, borrow more against the property, or your loan balance falls to 80 per cent or less of the property value^[1].

You apply only through a Participating Lender — not directly to Housing Australia — and you must still meet that lender's own credit criteria. Being eligible for the scheme does not mean you will be approved for a loan^[1]. The scheme also cannot be used together with the Help to Buy scheme^[1].

What is not covered here §

• Whether a specific manufacturer's contract qualifies. Only a Participating Lender can assess an individual building contract against the scheme's requirements.
• Homes on land you will not own. The scheme requires you to be the registered owner of the property at settlement^[1]. How that applies to a manufactured home on a leased site in a land lease community is not addressed in the material compiled here.
• Tiny homes on wheels. Nothing in the sources compiled here addresses a dwelling that is not permanently affixed to titled land.
• Granny flats and secondary dwellings. The scheme is for buying or building a home to live in as an owner-occupier; it is not a second-dwelling product.
• Single parent and guardian streams. A minimum 2 per cent deposit applies to single parents and legal guardians under a separate information guide not compiled here.
• State grants and duty concessions. Those are separate and are covered in the First Home Owner Grant and stamp duty guides on this site.
• Current caps and lender lists. Both change. The figures above are dated to their source.

References §